Does Market Capitalism Have a Future?

Does capitalism have a future? That intriguing topic was the subject of an HBS faculty colloquium led by professor Joe Bower, with fellow faculty members Dutch Leonard, David Moss, and Lynn Pain.

by Garry Emmons

In June, Professor Joe Bower (with fellow HBS professors Dutch Leonard, David Moss, and Lynn Paine) led an HBS faculty colloquium on "The Future of Market Capitalism." The HBS Alumni Bulletin spoke with Bower shortly after the event.

It survived two world wars and the Great Depression. It won the Cold War. Doesn't capitalism reign supreme in the 21st century?

Looking forward, we certainly can see challenges that will have to be met. So on the occasion of the School's Centennial, we felt it was appropriate to try to understand what major problems might lie ahead for market capitalism. By market capitalism we mean a system where decisions about what to produce and at what price are made by private firms operating in free markets. We wanted to know in what ways forces within capitalism itself might create conditions harmful to its progress. In addition, we wondered what forces, largely or completely unrelated to capitalism, might challenge it from the outside. And if capitalism is threatened, what can be done to protect it, and by whom?

For the colloquium, we compiled a briefing book based primarily on data from a 2007 World Bank study of global economic prospects for 2030. We showed it to important business leaders—some HBS alumni, some not—from around the world and asked them for their views on potential problem areas and what role HBS might play in addressing them.

The fact is that in many parts of the world, firms are not privately owned, and markets are regulated in various ways in all countries. Still, we found that most people we talked to understood the differences between the system we find in most markets today and the state-owned economies that were more common in the last century.

What did the leaders tell you?

All were impressed by the remarkable prosperity that has been generated by the functioning of market capitalism. Across the board, however, the primary concern was that the way the system currently functioned was associated with a great disparity of wealth and income in many countries and across regions. In turn, they thought these gaps could lead to populist politics that would adversely affect the conduct of capitalism.

A second major concern was that our productive system, as currently operated, contributes to unsustainable environmental damage and resource depletion. That, of course, is a serious matter in itself, but it could also cause political reactions harmful to capitalism.

Other possible disruptions to the operation of capitalism were seen in the following: the global financial system, viewed by some as overly opaque, leveraged, interconnected, and therefore vulnerable to shocks; inadequate rule of law and protection for property rights and contracts; underperforming education systems; massive internal and international migration motivated by income inequality; potentially adverse actions by large and economically powerful emerging nations; security threats from radical movements, failed states, asymmetric warfare, and crime; and global health issues, including pandemics. Finally, our participants cited the inability of existing global institutions—whether by poor design or lack of international support—to address these challenges.

We presented those discussions and the results to our colleagues at the colloquium and asked for their views.

Do CEOs see these threats as imminent?

In a sense, some of these issues are now factoring into daily business. Consider one example that involves the concern about wealth and income disparity as a threat to capitalism: Consumer-goods companies are very aware that the markets between the very rich and the poor are disappearing. Those firms are losing the middle ground, where a lot of consumer activity has traditionally taken place.

Companies also must compete for skills and talent. That has something to do with the quality of education systems, with migration patterns, and how we deal with migration. So the issues are playing out. There's certainly an awareness among businesspeople that such issues can affect their operations. They're saying, "Let's look ahead and see what's out there. The numbers suggest that problems could develop that might derail us."

What's the business leaders' mood?

It varies by region. In Europe, the feeling is that there will be continued economic progress, that markets will work well, but that there is an unwillingness or inability of democratically elected governments to deal with some of capitalism's fallout, particularly inequality and migration as its consequence. They see their cities, as in France, becoming battlegrounds. The very people they need for the workforce don't feel integrated or part of the social contract, and they know this can breed violence and terrorism. Their democracies seem unable to adopt appropriate remedies.

In Asia, they are mostly sanguine about economic growth. But there is concern about the environment, particularly the polluted cities. The Asians are also wary of what the "new rich" and a highly visible wealth gap could mean for political stability. In Latin America, they're concerned that economic progress may not be fast enough nor redistribution of income sufficient to forestall more Chavez-type leaders. Many distrust government. The U.S. business community despairs of America's energy policy and is upset with the way the country is dealing with migrants, both in agriculture and in high tech. Many are worried that U.S. politicians will respond with populist policies.

Problems aside, isn't capitalism on balance achieving great results?

Absolutely. It is an unparalleled engine of growth. Amid concerns, we must not lose sight of how far we have come. Progress has been astonishing, and the data show continued economic growth for most of the world. Incomes are rising, the poor are getting richer, diseases are being conquered, and we seem to be avoiding global wars. Overall, the picture looks good. However, we must also be aware that the political response to issues such as wealth disparity, the environment, security, and rule of law have the capacity to undermine capitalism and thus undermine this progress.